Business Context and Reporting Period
Company: Advanced Micro Devices, Inc. (AMD)
Filing Type: Form 8-K (Current Report)
Date of Report: January 21, 2010
Reporting Period: Fiscal quarter ended December 26, 2009, and the fiscal year then ended.
This filing announces financial results and includes a press release (Exhibit 99.1). It details the consolidation of GLOBALFOUNDRIES Inc. (GF) from March 2, 2009, through December 26, 2009, and provides non-GAAP measures for the "AMD Product Company" to exclude GF operations.
Key Financial Metrics and Adjustments
Note: This filing text describes the methodology for non-GAAP adjustments but does not contain the specific GAAP or non-GAAP revenue, profit, or cash flow figures for the reported periods. Those figures are located in the attached press release (Exhibit 99.1).
- Legal Settlements: Recorded a $1.242 billion net gain from a settlement with Intel Corp. (paid December 2009) and a $25 million gain from a DRAM pricing class action settlement.
- Debt Redemption: In Q4 2009, redeemed $400 million of 7.75% Senior Notes and repurchased $1 billion of 5.75% Convertible Senior Notes, resulting in a net loss of $11 million.
- Discontinued Operations: The DTV business unit was sold to Broadcom in Q4 2008 for $141.5 million and is classified as discontinued operations.
- Restructuring Charges: Totalled $4 million in Q3 2009, $50 million in Q4 2008, $65 million for fiscal 2009, and $90 million for fiscal 2008.
- Inventory Write-downs: A $227 million incremental write-down was recorded in Q4 2008 due to weak market conditions.
Material Changes and Non-GAAP Methodology
The filing outlines significant adjustments made to derive non-GAAP financial measures to better reflect ongoing operating performance:
- GlobalFoundries (GF) Consolidation: GF operations were consolidated from March 2009. Non-GAAP "AMD Product Company" metrics exclude the Foundry segment, intersegment eliminations, noncontrolling interest, and Class B preferred accretion.
- Exclusions from Net Income: Adjustments exclude losses from discontinued operations, amortization of acquired intangible assets (ATI acquisition), legal settlement gains, debt redemption gains/losses, and restructuring charges.
- Exclusions from Operating Income: Adjustments exclude amortization of acquired intangibles, legal settlement gains, restructuring charges, and GF operating losses (for Product Company metrics).
- Exclusions from Gross Margin: Adjustments exclude inventory write-down benefits, process technology license revenue (2008), and Foundry segment margins.
Guidance, Outlook, and Risks
Management Commentary: Management states that non-GAAP measures are provided to facilitate comparison of current and historical operating results and to offer visibility into results absent the consolidation of GF. Adjusted EBITDA is presented to assist investors and lenders in evaluating capital structure and borrowing capacity.
Risks and Contingencies:
- Market Conditions: Significant inventory write-downs in 2008 were driven by weak economic outlooks.
- One-time Items: Results are heavily influenced by non-recurring items such as the Intel settlement, debt redemptions, and asset sales (Handheld assets to Qualcomm for $65 million).
- Regulatory Note: The information furnished under Items 2.02 and 7.01 is not deemed "filed" under the Exchange Act and may only be incorporated by reference if specifically referenced in a subsequent filing.
Investor Verification Checklist
- Verify the specific GAAP and non-GAAP revenue, net income, and EPS figures in the attached press release (Exhibit 99.1), as they are not listed in this 8-K text.
- Confirm the reconciliation tables between GAAP and non-GAAP measures to understand the exact impact of the $1.242 billion Intel settlement on reported earnings.
- Review the "AMD Product Company" standalone metrics to assess core business performance excluding the GLOBALFOUNDRIES foundry operations.
- Check the cash flow statement to assess the impact of the $1 billion debt repurchase and $400 million debt redemption on liquidity.
- Monitor the status of the DTV business divestiture and any remaining liabilities associated with discontinued operations.